New Delhi: Telecom regulator TRAI on Monday recommended a sharp 60 per cent cut in the floor price of mobile phone spectrum for an upcoming auction after two previous sales drew lukewarm response because of high reserve price.
TRAI made recommendations to the Government for the start or base price of auction of spectrum in 900 per megahertz (MHz) and 1,800 MHz bands used by GSM players to offer 2G, that remained unsold after two rounds of auctions in November and March. It suggested a pan-India reserve price of Rs 1,496 crore per MHz in the 1800 band, down 37 per cent from the base price set in the previous auction, TRAI Chairman Rahul Khullar said.
In the 900 MHz band, it recommended a reserve price of Rs 288 crore per MHz for Delhi, Rs 262 crore for Mumbai and Rs 100 crore for Kolkata. These rates are about 60 per cent lower than the reserve price in the previous auction. The reduction in reserve prices follow the failed March auction, which drew just one bidder.
"We have reduced the reserve prices to make the auction successful," Khullar said. "If you ask me if the previous prices were high, my short answer is yes." 
"The approach has completely changed from the previous pricing regime," he said.
TRAI also recommended scrapping of the policy of incumbents like Airtel and Vodafone automatically retaining part of their existing spectrum in the efficient 900 MHz band provided they paid a price determined by an auction of airwaves.
If the TRAI suggestion is accepted, Bharti and Vodafone, whose licences are due for renewal next year, would have to bid again for all the spectrum that they currently hold in the 900 MHz band.
Telecom Minister Kapil Sibal said the recommendations are reasonable and in recognition of market realities.
"We are very happy by and large with the positive nature of the recommendations... they are industry friendly and recognise the ground reality of the market... Not only will government get its revenue but market will also be able to purchase spectrum at reasonable prices," he said.
 
TRAI also recommended that telecom firms be allowed to trade spectrum they buy through auctions, including the third-generation (3G) spectrum they bought in a 2010 sale. It suggested that the annual spectrum usage charge be set at a flat 3 per cent of companies' revenue for the spectrum they buy from auctions.
Currently, companies pay anything between 3 to 8 per cent depending on their spectrum holding. The regulator said before the upcoming auction, the DoT should come out with a clear road-map indicating the quantum of spectrum which will be available in future along with time-lines so that licensees whose permits are due for renewal in 2015/16 can take an informed decision about bidding for spectrum in the 1800 MHz band.
TRAI recommended that for auction of spectrum in 1800 MHz band, the block size should be of 2 x 200 KHz each and the existing licensee will have to bid for a minimum of 3 blocks. A new entrant will be required to bid for a minimum of 25 blocks of 2 x 200 KHz each. For auction of spectrum in 900 MHz band, it suggested the block size should be 2 X 1 MHz with the condition that each bidder will have to bid for a minimum of 5 blocks.
TRAI said eligibility rules will remain the same as in the previous auctions and no preference should be given to incumbents. It also recommended roll-out obligations for licensees having spectrum in 800/900/1800 MHz bands.
"All villages having population of more than 5,000 to be covered within five years of effective date of allocation of spectrum for access services and all villages having population of more than 2000 to be covered within seven years of effective date of allocation of spectrum," TRAI said.
Both the 900 and 1800 MHz bands are used to offer second generation (2G) mobile services through GSM or Global System for Mobile Communications. While the 900 MHz band requires fewer base stations, the 1800 MHz band has more capacity in terms of traffic and hence, less congestion. 
TRAI said telecom operators should be allowed to convert their existing 1800 MHz spectrum into liberalised spectrum only for the balance validity period of the spectrum assignment on payment of the auction determined amount. The auction-determined amount will be prorated for the balance validity period of spectrum assignment.
All spectrum allocated through auction should henceforth be charged at a flat rate. Spectrum usage charge will be the same for Reliance Jio Infocomm (4G operator), Airtel (GSM operator) and MTS (CDMA operator).
TRAI says SUC (spectrum usage charges) for all auctioned spectrum should be at a flat rate of 3 per cent of annual revenues of wireless services. This will come into effect from April 1, 2014. SUC rate for BWA spectrum should also be fixed at 3 per cent where services are provided under CMTS/UASL/UL(AS)/UL.
The Department of Telecommunications (DoT) had in July sought TRAI's views on the applicable reserve price for the auction of spectrum in the 800 MHz, 900 MHz and 1800 MHz bands.
TRAI said there was no need for determining a valuation or corresponding reserve price for 800 MHz spectrum at present. It also said that the payment term should be structured by the government to address financing issues of the bidders in the proposed auction.